Prepay Commentary

July Prepayment Speeds



August 7, 2017

 

July prepayments contained no surprises, decreasing for FNMA, FHLMC, and GNMA. Day count was the main driver behind this decrease: July contained two less business days than June, which should result in a 9% decline overall. FNMA MBS prepays fell the most, 8% for both thirty and fifteen years, while thirty-year GNMA II MBS prepayments only dropped 3%. Adjusting for day count, July prepayment numbers reverse the increases observed last month. For most portfolio managers, July prepayment speeds should represent a status quo for mortgage-related securities holdings. The small prepayment increases underlying June’s mortgage factor data apparently do not represent a trend.

Newer and slightly seasoned MBS slowed much less than more seasoned collateral, especially seasoned, higher-coupon collateral. The small dip in June mortgage rates, to the lowest levels this year, probably inspired some refinancing among the less seasoned mortgage holders, while the population of seasoned loans burned out under prior bouts of similar or lower rates. The average thirty-year conventional mortgage quote in the Bankrate survey reached 3.75% on June 6th.

Mortgage rates stayed in a relatively tight range during recent months. The last four months thirty-year mortgage rates have averaged 3.86%, according to Bankrate, with the high and low being only 0.25% apart. Fifteen-year mortgage rates performed similarly over the same time period, averaging 3.06% with the high and low only being 0.18% apart. Hence, many mortgage holders have had limited interest rate incentive to refinance for some time. However, fifteen-year mortgage rates dropped below 3% for this first time since the Election, marking 2.99% last Friday, which may lead to a small increase in fifteen-year prepayments in the future because of headline risk.

August has three more business days than July. Based on day count alone, August MBS prepayments should increase 15%. However, a weak housing market and seasonal factors will likely result in a less than 15% increase. Barring any political turmoil, the HARP program will come to a close at the end of September, which may lead to a slightly higher increase in very seasoned, higher-coupon collateral, as some of the remaining eligible population takes advantage of the program before its expiration.

 

 







 

FNMA Speeds by Vintage Year

FHLMC Speeds by Vintage Year

GNMA Speeds by Vintage Year

Non-Generic Collateral Comparison Tables


James Plunkett

Director of Investment Product Strategies

Vining Sparks


Amanda Noa

Vining Sparks


INTENDED FOR INSTITUTIONAL INVESTORS ONLY.
The information included herein has been obtained from sources deemed reliable, but it is not in any way guaranteed, and it, together with any opinions expressed, is subject to change at any time. Any and all details offered in this publication are preliminary and are therefore subject to change at any time. This has been prepared for general information purposes only and does not consider the specific investment objectives, financial situation and particular needs of any individual or institution. This information is, by its very nature, incomplete and specifically lacks information critical to making final investment decisions. Investors should seek financial advice as to the appropriateness of investing in any securities or investment strategies mentioned or recommended. The accuracy of the financial projections is dependent on the occurrence of future events which cannot be assured; therefore, the actual results achieved during the projection period may vary from the projections. The firm may have positions, long or short, in any or all securities mentioned. Member FINRA/SIPC.
Copyright © 2021
Member FINRA/SIPC
This is a publication of Vining-Sparks IBG, L.P.
775 Ridge Lake Blvd., Memphis, TN 38120